Technology @ Knowledge Zone


Indian Software Industry Moving Up The Value Chain?

by Jaydeep Chakraborty & Chitrita Bhattacharya *

Previous

Page - 2

Many Indian companies are already trying to scale up the value chain. Companies like I-Flex, Wipro and Infosys generate some part of their revenue through product development and consulting. Many smaller companies are also joining the bandwagon. This augurs well for the future of Indian software.

This paper explores these possibilities with respect to changes in existent business and revenue models, and suggests possible measures that can be adopted to derive greater benefits by scaling the IT value chain.

The Scenario So Far

Over the past decade, Indian software companies have been providing offshore development worldwide. This was a feasible business model given the business environment then. However, business today is more competitive. Software companies are faced with rising costs and huge billing pressures for their traditional businesses. It is therefore time to take the next step and move up the value chain. This would require a right mix of infrastructure, operations and business intelligence. The perception of India being just a low cost solution provider needs to be upgraded to a perception of better value.

Moving up the value chain is also imperative now as India now faces competition from countries like China, Russia and Poland. India is also losing its cost advantage - its USP for a long time - due to rise in wage rates in the software industry. To understand the reasons for the high wage arbitrage, the key lies in analyzing the following forces acting on the wage rate arbitrage: -

  • Price undercutting by competitors.

  • Shift towards offshore development due to an increased understanding of the cost structures of Indian companies among its customers.

  • The low barriers to entry in this industry means increased competition from companies in India and abroad.

  • Increase in wage rates in the industry and also the issues involved with the retention of talent by companies.

Next

* Contributed by -
Jaydeep Chakraborty, BE (ECE) from NIT Durgapur,
Chitrita Bhattacharya, BE (ECE) from MNREC (NIT Allahabad),
Currently pursuing PG Program in Management from XIM, Bhubaneswar.